There’s a bear in there – what drives mild versus deep bear markets

02_There_s a bear in there – what drives mild versus deep bear markets

Dr Shane Oliver
AMP Capital
Chief Economist and Head of the Investment Strategy team

Historically, bear markets in Australian shares have seen an average fall of 33% over 18 months.

However, this masks a huge range. 65% of bear markets have seen gains over the 12 months following an initial 20% decline in share prices.

Factors involved in whether bear markets are mild or deep include whether there is a recession, whether earnings slump and whether the market was overvalued or not prior to the start of the bear market.

Our view remains that a recession is unlikely, that earnings growth will be soft but is not about to implode and valuations are not stretched.


News that the Australian share market as measured by the ASX 200 index briefly slipped into bear market territory last week as defined by a 20% decline from the most recent high – which in this case was April last year – has generated much coverage and interest and understandable concern. This note takes a look at what bear markets are, how deep & long they have been and points out that they are not all of the big bad grizzly variety.

What’s a bear market?

Unfortunately there is no agreed definition of a correction versus a bear market – and certainly no “official” who makes declarations on this. My preferred approach is that a correction is limited to sharp falls, across a few months after which the rising trend in share prices resumes, taking shares back to new highs within say six months of the low. By contrast, a bear market sees falls lasting many months or years with a pattern of falling lows and highs and it takes shares a year or more to regain new highs.

A common approach is to use a 20% or more decline to delineate a bear market from a correction. Of course this is rather arbitrary – and right now it puts the ASX 200 as having entered a bear market (because it fell 20% from its high in April last year to its low last week), but not the broader All Ordinaries index which has “only” had a 19% fall. But I guess the line has to be drawn somewhere.
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